Forbes recently published an opinion article that attacked the appraisal industry and placed all the blame on appraisers for real estate transactions falling through due to a “low” opinion of value. The article was written by a real estate agent out of Arizona. While he raises some good points, he is conflating a lot of issues together. 1) He does point out that there are bad appraisals. We all know that. There are bad appraisers just like there are bad agents who have clients list a property far above any connection to market reality. So, yes, there are some appraisers who do ignore relevant market factors and may have an opinion of value too low as a result. But where is the discussion of agents who do no market analysis whatsoever and pull numbers out of an area usually covered?

2) He then jumps the shark by stating that if a borrower is putting a lot of money down, the appraisal should be irrelevant. In some cases, that is true. We’ve all done appraisals where even if your opinion of value were egregiously 100k below “true” market value, the loan could still go through. However, in cases like that where there is a bad appraisal and it is low but the LTV works out, it does not “kill the deal.” So, what the author is really gripping about are those cases where the borrower is putting a lot down AND the opinion of value is too low to make LTV considerations work out. Yeah, I would be upset in that case too if I were an agent. But again, there is no discussion about whether or not the appraiser is indeed correct. You can’t ALWAYS assume the appraiser is wrong.

3) He talks about millions being wasted for low appraisals. Again, he is automatically assuming the appraisal is “low.” The value may be fully market-supported and be just right. In that case, he should be singing the praises of appraisers who save lending institutions—and ultimately the tax payers—billions in avoiding bad loans.

4) He comes up with his own homecooked “algorithm” to wash out the effects of a single appraisal report. He is conflating underwriting AND credit risk issues with appraisal issues. If underwriters want to use his formula then go ahead. Maybe he has a million-dollar idea and can patent it.

5) He talks about an appraisal being an opinion. Does he not realize that AVMs and “algorithms” are just glorified mathematical opinions? Real estate is not physics where we derive laws of universal gravitation and the warpage of space and time to 20 decimal places. Real estate, at its core, involves human beings with emotions, capricious and ever-changing tastes, and externalities no AVM can fully account for. What happens when lava starts washing over your backyard like in Hawaii? They do have lava zones and maps, but sometimes the lava forgets to read those maps and heed the lanes marked out for it. Any AVM involves the subjective opinions of the programmer. What is his remedy for when a deal gets “crushed by subjective opinion” of an AVM? Some AVMs may be more objective if properly programmed, but it would be a fallacy to believe they are 100% objective. The more complex the AVM the more entry points there are for the programmer’s subjective opinion of how the market works. Those assumptions can be notoriously off the mark. This is something rarely pointed out in articles like these.

6) I am fine with two appraisals being ordered for each sale. (More work for all of us! Yay!)

7) He doesn’t define the “reputable real estate group” that would review any appraisal. It would have to be loaded up with appraisers because appraisers are the only parties in a sale that are supposed to be completely neutral and unbiased during a valuation process and are trained on deriving adjustments. Some agents are also pretty good at this, but they are not required to obtain specific training in that regard.

8) He shows no awareness of why the AMC may have sent a chowderhead appraiser out to his deal in the first place. Again, articles like these do not point out that the AMC industry (as a whole) has largely decimated the appraisal industry by stripping most of the profits out and soliciting appraisals to appraisers many hours away from the subject property in the hopes of getting the lowest bidder. (I am on the west coast and have gotten solicitations for homes in New York State.) Sometimes desperate and underqualified appraisers do accept the assignment, and, yes, you can get some pretty nasty outcomes as a result. AMC reform should be at the top of his agenda to make sure only the most qualified appraisers are offered an assignment. AMCs should solicit to appraisers based on quality and not based on how cheap and how fast.

appraiser shows up to an assignment with a 10-year old Toyota Corolla…while the agent rolls up in a sleek BMW… 9) He states that “the only person who actually benefits is the person writing the report. Go figure.” Okay, let’s figure. The appraiser may have gotten as little as $225 for the report. Is probably working for peanuts on an hourly basis. May have his report sanctioned by the state board if turned in and may be subject to lawsuits. No one benefits from a bad report, not even the appraiser writing it. As has been stated before: an appraiser shows up to an assignment with a 10-year old Toyota Corolla that needs new tires while the agent rolls up in a sleek BMW. While that is a generalization, I have been on enough assignments to see the truth in that aphorism…

By Abdur Abdul-Malik, Certified Real Estate Appraiser, Pacific Cove Appraisals, Inc. Abdur is a certified residential, FHA-approved appraiser. He takes progressive appraisal education seriously to stay abreast of the latest valuation methodologies. Abdur is a Candidate for Designation with the Appraisal Institute and is an associate member of the REAA and the NAIFA Portland, Oregon chapter.

41 Responses

As an appraisal in essence contains a single number (market value), its neither high or low, but only gets interpreted as such when other parties interests are added. Considering my area of practice appreciated over 8% last year, and your lucky to have one active listing for every ten sales, the irrational thinking (value as of TODAY), leads to 3 out of 10 sales being above market value. Excuse why I take my 16 year old Mazda with two nearly bald tires to a field review appointment where it looks like the value is going to be cut (1.1 to $975,000).

If appraisers are that incompetent, why not just get rid of them as a whole ….I mean seriously the amc work is so screwed up that if there were incompetent appraisers that we would all be blacklisted …..just more propaganda from realtors that are making $35,000 a year and are killing that one deal to make slightly more

What bothers me about the whole thing .. that article was published without another perspective from the appraiser … that article should have been followed up with an article by an appraiser … the public needs to know the truth and we (appraisers) need to stand up to this BS!

Most of the sales in my market that “I Kill”, involve large seller concessions.

Let’s look at the example I face all day: Seller and RE Agent agree that the property is worth $100,000, they concoct a list price of $108,900 to cover a commission, closing, what if? money in hopes that they could get a stupid buyer willing to part with $105,000 for their $100,000 property. They negotiate an offer of $102,000 and add on a $5,000 seller concession, so is the property now worth $107,000 wola, magic? The appraiser is now faced with a number $7,000 higher than the RE Agent and the seller agreed was for market value just a week or a month before. Did the market “Jump” 7% in that time period, I think not.

The Realtors don’t seem to understand the adding of a concession in my market, is it just Upstate New York?

The ONLY group that get’s the AMC concept right is the VA (and their not really an AMC). Effectively there is one set of rules. If you cross your “T”s, dot your “I”s, follow USPAP you get few returns and not too much moaning.

The “Tidewater Initiative” should be available to FHA, USDA and conventional.

As I believe in keeping my friends close, but my enemies closer (monitoring of AMCs), perhaps Jason Mitchell is barking up the wrong tree. Perhaps the lenders are the ones who need new standards. In keeping my enemies closer, I just received a new order (declined) from Freedom Mortgage by way of their hired AMC, Singlesource. The assignment is due on 06/29/2018 (in two days), is for a 1073 + 1007, and the purchase price is over $400,000. With two pages of client guidelines, they are offering this assignment for $225. When a good full appraisal/rent survey (with travel) will take 10 hours to complete, and with business expenses of 40%, please tell me Jason what results would you expect when the net pay to the appraiser is just above my states minimum wage? Glad to see your worried about the financial impact of paying an appraiser minimum wage, while ignoring in this case the $20,000 in commissions being paid to the agents and brokers (5% x $400,000).

First and foremost the fact that you took the time on a reply to Judy that was this thorough says a lot. Your comments are intelligent and logical.

I will say that it was never my intent to have this come across as “appraiser bashing” although I can see where some may feel that way. There are certainly bad appraisers in our industry, just like there are bad agents (in fact probably more agents that appraisers). The point of my article was simply suggest a better, more sophisticated way to obtain value. Many deals in our industry are lost because of a lack of knowledge on the appraisal end, especially in market places where there are a lack of comps and in places where you don’t find the typical cookie cutter home. I can see this article hit home for both agent and appraiser and quite frankly that was the goal. To start a conversation. The bashing though was never my intent.

Thank you for sending me this. It says a lot. You certainly have a way to look at both sides of the spectrum. That’s called logic. I wish our country could find a way to do this on a political scale.

His reply was decent as well. The solution to is postulated difficult areas appraisal challenge is to PAY A HIGHER FEE that more experienced appraisers will accept. Dont expect to pay $350 or even $750 for $3,000 worth of an expert’s work.

Flat rate realty is an absolute joke. If you appreciate the telecom model of amc’s, you’ll love flat rate listings and eventually, the lender will run everything from the list to the appraisal (avm), and the customer will not even need any representatives, those banks are so dang trustworthy with all of their advanced technology. Checks and balances are essential. Be careful what you wish for.

Thanks for taking the time to reply. I appreciate that you were not intending to come across as bashing appraisers, but I am afraid the article does come across that way. A more balanced approach would have been to look at the role of the multiple parties involved in a real estate transaction. An unspoken assumption/implied assumption in your article is that all real estate transactions should go through regardless. I am sure you don’t really believe that, but a casual reader might make that inference. Some deals deserve to die.

Your point about complex assignments relates directly to my point #8 below. Are you aware of how AMCs might be screwing up some of your deals? Many AMCs will blast an order to 70+ appraisers simultaneously and award the assignment to the lowest bidder. So, you get some very unqualified appraiser half a state away who knows nothing of your market rolling in doing the report for $225. The AMC is a middle-man and takes as big a cut as they can get. Think about all the work you have done on a deal only to have an AMC trying to make a few hundred dollars blow it up by assigning the file to the wrong person. It takes time to write a sound and well-supported appraisal. If you are doing a lot of deals on non-cookie cutters, you should expect an appraisal fee to be well north of the $350 figure you cited in your article. Well north. Very good and well-credentialed appraisers will bid $1,500+ for a really hard one only to have the AMC laugh in their face. So you wind up with the dunderhead who produces a report that, if printed, might best be used to line a parakeet’s cage. You get what you pay for.

You are a good writer. Investigate that angle and write another article for Forbes. Use that golden pen to make the real estate valuation space better and it will improve your bottom line!

The problem I see and hear from brokers and lenders is that when there is a value dispute and it’s always too low and additional comparables are provided, the appraiser never considers and just back themselves into a corner and become stubborn appraisersauras A-Holes! That does no one any good! A lender client of mine recently told me this when an appraiser was approx 25k low that if he considered the sales he missed he would look bad and had to defend his report to the death! This is a terrible mindset, none of us are perfect and I’ve changed value in the past when I missed something, I owned my mistake, admitted it, stated this and moved on, we are supposed to be advocates for assignment results, but too many of us take it as a personal assault and become defensive, is it any wonder why we are hated. A little customer service can go a long way, we are not perfect and ours is just an opinion of value taken from often times old data.

You make a good point. On very rare occasions I too have changed my value opinion when it was clear I missed something important. Too many appraisers think if they change their OoV then they open themselves up to liability. More the opposite. I’d rather have the opportunity to fix a deficient report before a deal finalizes than have to defend it before a state board if an angry lender or borrower turns it in.

A long time ago I learned to do a final comp search based on price for sales and to look at every property in a defined market that equals or exceeds sales price. This is done after my initial comp search based on relevant physical and locational characteristics. I do that as a final check to make sure I am not overlooking a valid sale. That final comp check has saved my bacon more than once.

It amuses me when people state, the value is what the buyer is willing to pay for it. My response is the buyer can pay whatever they want for the property if they are paying cash. When they are using someone else’s money, there are rules and regulations that need to be followed.

Exactly. It’s not up to the lender to assume the additional risk above and beyond what the sold comparable’s that are available at the time suggest the value of the subject should be. The Buyer can always add their own cash to make up the difference.

The agents states “Many deals in our industry are lost because of a lack of knowledge on the appraisal end, especially in market places where there are a lack of comps and in places where you don’t find the typical cookie cutter home.” So if the appraiser, who has massive amounts of training in valuation, is supposedly not able to come up with an accurate value due to lack of knowledge and lack of comps in non cookie cutter neighborhoods then an agent is suppose to do better in pricing the home? That doesn’t make sense. What he is effectively saying is that the agent came up with a list price for this type of home that is more on target than the appraiser. Most agents don’t even get the square footage of the home correct yet they set a list price based on the incorrect square footage. I would like to know how many times the agent has sat down with an appraiser and talked about how appraisers do their job and come up with adjustments and value. Thanks Abdur for your critical but fair critique of this article.

You’re too nice, like Abdur. The article at Forbes was a hit piece against appraisers, cleverly written to discredit the appraiser in favor of avm, waivers, and non human appraiser alternatives. This guy knows all about how the process works, he purposefully slandered the appraisal community for his own benefit. We’re the thorn in his side that stops his clever automatic shebang program from being maximally effective. He’s probably put hundreds of other realtors out of work, watch out he’s likely to start is own amc.

Jason Mitchell – Arizona’s #1 residential realtor with personal production surpassing $122 million in 2017. Jason is the #1 ranked realtor two years in a row (2016, 2017) and along the way, has shattered milestones and is constantly setting new records in the industry.

Sound familiar? Sort of like amc’s? It should, the systematic dismantling of traditional methods is how they achieve those merits.

I have never posted on this site before, however, in my inaugural post, I would suggest not addressing Realtors with “brilliant ideas”. The appraiser is forever engrained into the real estate transaction and no amount of aggregated data is ever going to meet the Certifications of a real estate appraiser. I encourage every appraiser to step back and realize the lender, investor, pool insurer, title insurance company, tax assessor, tax accountants, probate courts, bankruptcy courts, buyers, sellers, divorce courts, estate lawyers, accountants, and the list goes on, ALL NEED YOU. Take one more step back, really who needs a Realtor? The next time you read an article written by a Realtor attempting to “steal the value of the appraiser” to push their own agenda, just take a deep breath and remember how hard you worked to be a real estate appraiser. No other industry within the real estate industry has such high standards until you say “lawyer”.

That said, I encourage all appraisers on every level to drop the “competitive nature” between yourselves and find some humility to join up and protect yourselves from the real estate industry. Example: NAR writing the “Appraisal Trends for 2017”; regardless of NAR’s relationship with The Appraisal Institute, you are being drowned out. Either Appraisers come to the table independently of the other industries, or you will continue to be marginalized in the media and with regulators. Think about it, if an appraiser wrote an article about the lack of value to the services of a Realtor, people would think you were an idiot. But the shoe fits on the other foot because the NAR and lenders do the talking FOR YOU. Solve this problem and 99% of your issues go away.

For the record, I spent 22 years in this industry starting as an appraiser and retiring as a fraud manager for a huge bank. Appraisal fraud was rare, but after following the money to the perpetrators, it was always somebody holding a real estate license and an active, or disbarred, actor in the mortgage or real estate sales industries. Regulations imposed on your industry are the result of not having a voice to point the finger where it belongs.

In the end, I think the author of the article makes your greatest point EVER: There should be an appraisal required to list or sell a property in an open market, then there should be a second appraisal to lend on the property. Ever hear a bank question your value by saying, “the Realtor has a point, the price per square foot is the best indicator of value?” Better, “could you use these irrelevant comparable sales from across the river because the builder is the same?” No, you haven’t. So think about what he wrote and realize his true value is in salesmanship and he is attempting to marginalize your industry because he cannot control it! In doing so, appraisers all respond like “protesters” and we know where that gets you … regulated!

My final thought is: If you want to “protest” commentary, “protest” the commentary of your appraisal foundations who claim to be representing you. Heckle them until they act! Start with transparency of the appraisal fee by splitting it up on the Settlement Statement so the borrower knows how much they paid to the intermediary and to the appraiser independently. No other contributor (lender, closing agency, title company, Realtor, etc.) is allowed to lump fees like that. Further, the “intermediary fee” should be paid by lenders because it is in place to regulate their communication with appraisers, but appraisers chronically complain the appraisal is worth $500, but they got paid $325. That $175 is being paid by appraisers and yet the banks and lenders own the intermediaries … so they are paying themselves at your expense!!! This seems like a great starting point for the appraisal industry to address regulators. There is no changing the facts of who the owners of these intermediaries really are.

The junk fee, unearned fee, and other fee rules. It’s true, junk fees are legal in real estate appraisal and everyone looks the other way. The lenders and the agents of the lenders just dip into the appraisal fee, take as much as they want, do not disclose their raked amount to anyone, and there are absolutely no consequences for these known and easily verifiable conflict of interest and theft of fee issues. My vote for a new inclusion in the updated FNMA forms is a mandatory fee entry set of questions to include total consumer fee, total appraiser fee, total outsourced services fee, to specifically account for every single dollar and every single paid service from the top to the bottom, including names of all participatory companies or services, no exceptions, all to be filled out exclusively by the appraiser. Time to shed some light on these nefarious industry practices.

The gem of the fake news Forbes article was this; Isn’t the true definition of “market” supposed to be what someone is willing to pay for a product or service? Now now Jason Mitchell, you may need a lesson on how corrupt the FED is, how rate, value, and legislation are manipulated by this consortium of unaccountable private bankers as they feed the first receivers of money fortunes on a silver platter, setting everyone else in the credit bubble. Appraisers in this regard are the innocent by standers. If the above italicized statement is true, they can pay cash and stop begging the lenders for a loan on it then, and they won’t even need an appraisal. Which ‘market’? The credits or cash market, the distinction is necessary in mortgage lending. Perhaps he does not understand fractional reserve lending and how most originators offload the majority of these instruments anyways? The fed continues to seek prosperity through debt and purposefully devalues our currency 2% or more a year, loaning to lenders at negative rates. Financial and market ‘experts’ whom do not understand the conflicts of interest that have become ingrained in over a 100 year period of fed non-accountability. The Creature From Jekyll Island lives on. In this instance, in the form of real estate agents whom are conditioned through experience real estate should only go up up up.

Human nature being what it is, pre listing appraisals at full fees are not likely across the USA. D.S. Murphy does them in Georgia (D.S. Murphy is or was Chairman of the States Regulatory Board for appraisers) Problems result from this for appraisers that don’t concur…though ALL could be avoided if Murphy’s folks indicated in their appraisals they are intended to provide a range to sellers where a highest probable potentially supported value may be attained rather than pretending they are ‘market value’ and woe behold any appraiser that disagrees.

I hope we will see more well thought out posts from you in the future.

One appraiser says a home is worth $550K, another $475K: How about one agent BPO says $600K, another $500K? Agent 1 lists a house for $599k, it sits on market until the listing expires, next-Agent 2 lists same home at $499K and sells in a week. Agent 1 opinion yielded $0 commission. Agent 2 got paid.

The solution, a Lender can be more risky if a buyer puts down more money. Lender can foreclose and re-sell the property: Ummm-foreclosing, marketing and selling a property is not free-it costs quite a bit. Lenders want to make $ on loan origination and servicing, if they wanted to buy and sell real estate-they would be agents.

Money being wasted on appraisals: If time is money, list at realistic prices and stop wasting everybodys time. Remind me again-how much do appraisals cost? And how much do the other services in a transaction cost?

Borrowers Risk Tolerance and 30% Fluctuation? Appraisers provide unbiased opinions of value based on market data, lenders lend their funds after assessing the LENDERS risk, I hope thats what the writer meant. If it were my money, I do not have a 30% tolerance for risk. I doubt even Arizona’s top agent would lend his money with that “built in fluctuation”

Reputable group to evaluate/rebut appraisals: Review appraisers nationwide are on the job. I can tell you that in my decades long career, when reviewing appraisals; I have cut 999 appraised values for every one that I have raised. Most rebuttals are weak and geared towards a pre-determined value. Be careful what you ask for

So, NO, everyone does not win with this new solution of increased risk to the lender based on LTV and a 30% built in fluctuation allowance, two appraisals and a review/rebuttal process. Real estate agents might win more valuation battles than they do now, and sell more homes. Lenders wont win-lenders buy back bad loans, the bailout safety net has been removed. Appraisers might win-if two appraisals are required on each transaction. But is the consumer not the most important player in this group? As professionals, are we not to promote public trust? If the end game is to line our pockets by overselling our products-this new plan may have some merit. Personally, that is not my end game. This article speaks volumes about players in the process perceptions of each other. I think we can all learn from this and try to gain a better understanding of what each other ACTUALLY do. Our understanding is correlative to our perception.

“3) He talks about millions being wasted for low appraisals. Again, he is automatically assuming the appraisal is “low.” The value may be fully market-supported and be just right. In that case, he should be singing the praises of appraisers who save lending institutions—and ultimately the tax payers—billions in avoiding bad loans.”

He’s forgetting the purpose of the appraisal in the first place. Lenders spend the what, $500 in hopes that they will be warned away from making a deal that will result in them losing $40,000. Wait. It’s not even the lenders coughing up the $500.

Then he’s completely ignoring the fact that if everyone were to be landing value on whatever piece of junk property, the market inflates…To the point where it pops and we go into the worst recession since the depression. So… A few million vs the system collapsing. It shouldn’t be a hard choice.

Why would a top producing agent slam appraisers? Because if the incredible customer retention and growth claims of their proprietary shebang crm program are not met, that must have been the appraisers fault and had nothing to do with the competency of the agents whom used the software.

Per the original article: We simply cannot let one person’s subjective opinion of value make or break a sale. And for the hundreds and thousands of people who have worked hard to buy a new home, they deserve a better process.

Having a reputable real estate group that evaluates every appraisal, asks the questions as to why the home was appraised at that price and submits a rebuttal if necessary can lead the industry down the path toward a lasting solution.

What would it take for this to become the new standard?

Answer: A complete disregard for checks and balances systems, and to put commission based advocates in charge of the appraisal review process. Oh yeah, that’s advice you can trust. The hubris of this guy, presuming he’s objective but the non advocate is not. If a home is supposedly worth so much more on one side of the highway, comps reflect that. Having specialized software does not make one more qualified. He would develop his own appraisal software to make sure nobodies time was wasted and every deal went through. But there is a better way. The buyer can dig deep and turn out cash from those pockets to pay for that perceived elevated worth without needing the lender, clearly establishing that price related value in a market, if they think the value should be 20% higher or whatever nonsense logic he’s using to demand rov’s on everything. It’s easy to disregard the pain of foreclosure when you’re rich. The events which lead to underwater positions, the unpredictable life events which contribute to that steady predictable default and attrition rate of recently originated loans. Who cares about the financial position of the little guy, it’s the deal which is most important and all the little man hours those banksters and commission based agents put into forming the deal. It’s time we had a new priority in real estate.

The nations top producing realty agent does not know the difference between price and value, using the terms interchangeably and improperly. He seeks to eliminate and automate checks and balances systems to guarantee all deals close. Welcome to the brave new world of real estate driven by tech companies. Lenders, more dangerous to our liberties than standing armies.

Excellent observations. We have to understand that the term “low appraisals” or high appraisals may be arising from CoreLogic reports where they simply contrast contract price with appraised value. Anything at odds with that number is purportedly high or low with some kind of deficiency inferred.

Its been pointed out repeatedly, yet lazy “journalists” keep touting the same conclusion without ever asking HOW the source determines an appraisal to have been either high or low.

Hi There! My name is Cassie and I work for an advertising agency in New Mexico. We are gathering stories from appraisers about their craziest day on the job. During our research so far, we have discovered that a lot of appraisers run into some pretty unique predicaments while visiting properties. (We hear that being chased by dogs, facing homeowners with weapons, and being accused of stalking while taking comp photos is all in a day’s work as an appraiser). We are developing a social media campaign for one of our clients who provides sales comp data to real estate appraisers, and will be sharing these stories through social media to help us reach the appraiser community.

If you happen to have any interest in sharing a story with me, I’d love to hear it! You can always reply here, or ask for my email address. I know this is an odd request, but collecting these stories is a key part of developing our campaign. I appreciate your time!